Manufacture through assembly of duty-paid components supports Cenvat credit on inputs used for exported products.

Assembly of duty-paid components into complete plants and machines can constitute manufacture under Section 2(f) of the Central Excise Act, 1944 where the process produces a new, distinct and commercially identifiable product, and is not limited to mere fitting or connection of parts. On that footing, inputs used in such manufacture are eligible for Cenvat credit when the resulting goods are excisable and exported. The note states that the demand and credit disallowance based on the contrary view were unsustainable, and the impugned order was set aside with consequential relief.

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Issues: (i) Whether the assembly and related processes undertaken on duty-paid components resulted in manufacture under Section 2(f) of the Central Excise Act, 1944. (ii) Whether the appellant was entitled to Cenvat credit on the input machineries, parts and accessories used for the exported final products.

Issue (i): Whether the assembly and related processes undertaken on duty-paid components resulted in manufacture under Section 2(f) of the Central Excise Act, 1944.

Analysis: The activities carried out on the procured components were not mere fitting or connection of parts. The final goods exported were complete plants and machines assembled from identifiable duty-paid components having distinct tariff classification. Applying the settled principle that a process resulting in a new and different commercial product amounts to manufacture, the assembly undertaken in the factory satisfied the statutory test.

Conclusion: The process amounted to manufacture.

Issue (ii): Whether the appellant was entitled to Cenvat credit on the input machineries, parts and accessories used for the exported final products.

Analysis: Once the assembled goods were held to be manufactured excisable products, the duty paid on the inputs used in that process was eligible for credit under the Cenvat scheme. The demand and disallowance based on the contrary assumption could not be sustained.

Conclusion: The appellant was entitled to Cenvat credit.

Final Conclusion: The disallowance of credit and the connected duty demand were unsustainable, and the impugned order was set aside with consequential relief.

Ratio Decidendi: Where assembly of duty-paid components results in a new and distinct commercially identifiable product, the activity constitutes manufacture and Cenvat credit on the inputs used in that process is admissible.

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